Macroeconomic rationality and Lucas’ misperceptions model: further evidence from 41 countries.

Several researchers have examined Lucas’ misperceptions model as well as various propositions derived from it within a cross-section empirical framework. The cross-section approach imposes a single monetary policy regime for the entire period. Our paper innovates on existing tests of those rational expectations propositions by allowing the simultaneous effect of monetary and short-run aggregate supply (oil price) shocks on output behavior and the employment of advanced panel econometric techniques. Our empirical findings, for a sample of 41 countries over 1949–1999, provide evidence in favor of the majority of rational expectations propositions.N/